In the past decade or so of Bitcoin’s development, although the price has generally gone up, the process has been tortuous, with many early participants being cleansed out of the market during the alternating bull and bear markets. For example, between April 14 and May 19 of this year, the BTC price fell from nearly $65,000 to $30,000, shrinking investor assets by more than 50% in a short period of time. How to get more security gains from BTC in hand, reduce losses in a bear market and gain more in a bull market has become an important proposition of concern to current cryptocurrency holders.
The current situation of BTC finance: the yield of centralized platform is only 1%
In centralized exchanges, wallets, lending and other platforms, they usually provide financial services. The platforms borrow tokens from users through lower interest rates and then lend them out at higher rates. Cryptocurrency holders can deposit their holdings of bitcoin and other assets on the platform to earn a return. In leveraged trading, traders also need to borrow tokens from exchanges.
In the case of Cryptocurrency, for example, the annualized interest rate for a deposit of USDT Call Money in Cryptocurrency is 2%, but in leveraged trading, traders borrow USDT from Cryptocurrency at 0.00375% per hour, which translates into an annualized interest rate equivalent to 32.85%. In a bull market, because there is a large demand to borrow USDT for leverage, the interest rate for users to borrow USDT will increase accordingly.
BTC has a larger market capitalization, more inventory in the hands of users, and the holders usually believe that BTC will continue to rise, so for BTC that they do not need to use for the time being and are bullish in the long run, they are more willing to save and earn interest. The demand for BTC borrowing is also relatively low, and the ratio of cottage coin to bitcoin price is more likely to decrease, and users are more likely to borrow BTC assets for other channels of finance or sell short. As a result, interest rates on deposits and borrowing are lower for BTC compared to other tokens. According to data shown on the official websites of CoinSec, FireCoin and OKEx, the annualized interest rate for BTC demand deposits is only about 1%, and the data in this article were collected from June 11.
Sorting out the BTC finance in the gradually emerging decentralized protocol
BTC in decentralized protocols are all in the form of BTC-anchored coins and are mainly on Ether. Since DeFi Summer last year, Bitcoin assets have many more avenues to gain revenue because of liquidity mining, and although the yield is getting lower, it is also attracting more and more money. The number of BTC-anchored coins on ethereum continues to grow, from 5,300 to 249,281 over the past year. It is still dominated by centralized issues of WBTC and HBTC.
After the decentralized solution matures, BTC anchored coins issued in a decentralized manner may become mainstream.
The token reward for liquidity mining comes from the cost of capital paid by the protocol to gain liquidity. The annualized return on liquidity mining in mainstream DeFi protocols has also dropped from several hundred percent when it first emerged a year ago to a few percent currently. On one hand, the price of governance tokens is typically higher when projects first go live due to limited liquidity. On the other hand, more and more money is entering this market, resulting in fewer and fewer tokens to share for the same amount of money. For example, the price of CRV, the governance token of Curve, a stablecoin exchange platform, has dropped from tens of dollars at launch to $2.40 now, but at the same time the amount of money deposited in Curve is growing, including Factory Pools, which is close to $10 billion. The Y pool, which now has a combined annualized return of only about 2%, but the LP tokens from the Y pool a year ago can also be used to acquire head DeFi tokens such as YFI.
BTC anchor coins are widely used in various DeFi protocols. Take WBTC, which has the largest number of BTC anchor coins in circulation, for example, the current circulation is 188,960 in total, of which 20.98% are pledged in the lending protocol Aave V2, Compound, Polygon Bridge, Maker and SushiSwap respectively 14.26%, 13.57%, 8.85%, and 3.9%.
In all these mature DeFi protocols, WBTC yields are relatively low, and with platform coin rewards, the yields are only 1.32% and 4.23% in Aave V2 and Aave Polygon, respectively, and 1.02% in Compound for WBTC deposits.
In Curve, on the other hand, the rewards of the oBTC and pBTC pools are 9.82% (BOR) and 17.73% (PNT) annualized returns for their own platform coins, in addition to fees and CRV rewards, respectively. For this new type of BTC anchored coins, higher returns are generally used to incentivize users to use them.
eBTC earnings calculation: expected to reach 30% upfront
DeCus is exactly a cross-chain BTC project that will be launched soon, with features such as completely decentralized, affordable for everyone, 100% pledged redemption of native BTC, and transfer in seconds. DeCus offers a highly capital efficient cross-chain hosting solution that locks in native BTC and generates BTC anchor coins on platforms that support smart contracts such as Ether. To convert BTC into eBTC in DeCus, users still need to pledge their native BTC 1:1, but Keeper, the custodian, satisfies the protocol’s security without the full pledge margin after a clever overlapping grouping.
The total number of DeCus governance tokens DCS is 1 billion, and the protocol sets aside a large number of tokens to incentivize the participants of the protocol, 45% of which will be allocated to the participants. 20% of the tokens are allocated to liquidity mining to eBTC holders, 15% to Keeper, 9% to liquidity mining for DCS pledgers, and 1% to compensate for minting fees. In addition, the agreement sets aside 15% of the tokens for the DAO community to use at the DAO’s discretion.
In the minting process of eBTC, the user pledges BTC to the escrow address and then sends the proof of pledge to the smart contract, which mint new eBTC and sends it to the user to complete the minting process. Keeper uses WBTC as the margin in the early stage to transition, and eBTC will be used as the margin when the cold start of the project is completed. Both types of major participants in the protocol participate with BTC assets and receive DCS token rewards, so the participation process of both Keeper and users can be regarded as BTC finance management.
The rate of return for Keeper and users in DeCus can be roughly calculated by a reasonable extrapolation.
The liquidity mining of eBTC will allocate 20% of the total 1 billion DCS over 5 years, with 7.5% of the total allocated in the first year and 2/3 of the previous year’s amount allocated each year thereafter.
DCS institutional round valuation price of $0.03, early investors’ tokens will be released linearly by block height in 2 years, and the original price of IDO on New Venture is $0.06, so the predicted average price of DCS in the first year is more reasonable at $0.05.
Then the liquidity mining reward issued to eBTC in the first year is: 1 billion * $0.05 * 7.5% = $3.75 million.
Assuming the minting volume of eBTC in the first year is 1000 coins and the BTC price is calculated at $40,000, and all of them are used for mining, then the liquidity mining yield of eBTC in the first year is: $3.75 million/1000/$40,000 = 9.38%
Keeper’s collateral rate will decrease as the number of Keeper increases, assuming that Keeper’s collateral rate is 50%, the annualized return of Keeper can be calculated as: $1 billion * $0.05 * 5.63%/$500/$40,000 = 14.1%
And the mintages of eBTC may be lower than the predicted 1,000 coins in the early stage of Decus mainline, such as the first quarter. With only 600 eBTC minted, the annualized return of eBTC liquidity mining is: 1 billion * $0.05 * 7.5%/600/$40,000 = 15.6%
And Keeper’s annualized return will rise to: 1 billion * $0.05 * 5.63%/300/$40,000 = 23.5%
In addition to the predicted base return, there are many measures in DeCus’ economic system that can increase the return for Keeper and eBTC users.
Keeper’s use of eBTC as collateral will increase the weight of the DCS tokens received. Although WBTC cross-chain assets can also be used as Keeper’s collateral, using its own eBTC in order to increase the use of assets within the DeCus ecosystem can result in a higher weighting, i.e., a higher return, than, for example, WBTC.
The calculation assumes that all eBTC are used for mining, but in reality some eBTC are used as Keeper’s collateral and cannot participate in liquidity mining of eBTC.
Among the remaining eBTC in circulation, there may be some users who are not willing to pledge eBTC for mining. If the pledge rate is 50%, then the yield of eBTC liquidity mining will be twice the calculated value.
The BTC price was $37,000 at the time of writing on June 11, while the forecast was calculated uniformly at $40,000. DCS price was also calculated uniformly at $0.05, and the pre-DCS price is likely to be higher than this value.
eBTC can be easily integrated with other protocols to receive governance token rewards from other protocols. protocols such as Curve are open to stablecoin, ETH and BTC assets, and are likely to integrate eBTC to give eBTC holders CRV token rewards, as well as a share of transaction fees. 38 reward pools are already open in Curve.fi, and dozens more are available in Curve Swaps has dozens of other liquid pools integrated with Curve.fi Factory. pBTC, BBTC, TBTC, oBTC, sBTC, renBTC, WBTC, HBTC can all receive CRV token mining rewards.
According to the previous calculation, with 600 eBTC minted and all of them used for liquidity mining, the annualized return is still 15.63%. However, in reality, some eBTC must be used as Keeper’s collateral, or the holder does not use it for mining, so the actual rate of return may be higher, and the combined annualized return of early eBTC liquidity mining is likely to reach more than 30%.
There are multiple ways to gain through BTC in both centralized and decentralized platforms, but the deposit return on BTC is only about 1% in centralized platforms or established decentralized platforms.
Some new BTC-anchored coins often attract users to use them through higher yields also, and DeCus offers a highly capital-efficient cross-chain escrow solution that allows the escrow holder to secure the agreement without full collateral. According to calculations, the annualized return on liquidity mining for eBTC could reach 30% in the pre-launch phase of the project.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/btc-deposit-yield-comparison-how-to-get-a-higher-yield/
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